What this calculator computes (and why it matters)

Unit economics is the math of “one unit” — one order, one subscription month, one delivery, one customer. When you zoom in like this, you can answer the uncomfortable but powerful question: “If I scale this, do I scale profit… or do I scale losses?”

This calculator uses a practical sequence that many founders and growth teams use for first‑pass decisions: realized revenue → variable costs → contribution profit → lifetime contribution → CAC → net profit. Here’s the exact flow.

Realized revenue is the money you keep after returns/refunds reduce what was paid. If your listed price is P and your refund rate is r, then:

Realized revenue = P × (1 − r)

We model refunds as a percentage reduction of revenue in the period. In reality, refunds happen later and can include partial refunds, store credit, chargebacks, and restocking — but this gives you the right intuition fast.

Variable costs are the costs that rise with volume. If you sell 10× more, these usually rise ~10×. We include four common buckets:

• COGS: product cost, materials, direct labor, or per‑user hosting for SaaS.
• Fulfillment / delivery: shipping, packaging, last‑mile, or per‑customer delivery overhead.
• Support / servicing: customer support minutes, moderation, success calls, per‑unit servicing.
• Payment fees: a percent of realized revenue (credit card fees, payment processors).

Payment fees are computed as: Payment fees = Realized revenue × fee%.

Contribution profit is what’s left after variable costs. It is the pool that can pay for CAC, fixed overhead, salaries, product development, and profit.

Contribution profit = Realized revenue − (COGS + Fulfillment + Support + Payment fees)

Contribution margin = Contribution profit ÷ Realized revenue

Why is this number so loved? Because it tells you if the core engine is fundamentally healthy. If contribution margin is negative, you’re losing money every time you sell (before you even pay for marketing). If it’s positive and strong, you can reinvest into growth.

Lifetime value is often overcomplicated. A clean first version is simply: how much contribution profit one customer generates over their lifetime. This calculator approximates that by multiplying contribution profit per unit by a “lifetime units” number:

LTV (contribution) = Contribution profit per unit × Lifetime units

This is why improving retention (more months) or repeat purchases (more orders) can be just as valuable as improving price — sometimes even more.

CAC is what you pay to acquire one paying customer. If your LTV (contribution) is less than CAC, then on average you’re buying customers at a loss.

Break‑even CAC = LTV (contribution)

“Break‑even CAC” is the maximum CAC you can spend and still break even on a customer (before fixed overhead). If your actual CAC is higher than this number, the model will show negative net profit.

Net profit per customer = LTV (contribution) − CAC

The ratio LTV:CAC is a quick health signal:

• < 1× means you lose money on customers.
• 1×–3× can be workable but fragile (depends on overhead and cash flow).
• 3×+ is often considered strong (especially if payback is reasonable).

LTV:CAC = LTV ÷ CAC (if CAC is 0, we treat it as “∞”).

Payback is how long it takes to recover CAC from contribution profit. In e‑commerce, we approximate payback in orders. In subscription, we approximate payback in months.

Payback units = CAC ÷ Contribution profit per unit

If contribution profit per unit is very small, payback becomes long (or “not achievable” if negative). That’s a loud signal that either price is too low, variable costs are too high, refunds are hurting you, or CAC is unsustainably high.

Three quick scenarios you can copy

To make this practical, here are realistic examples. You can recreate them by moving the sliders and pressing “Save scenario” so you can compare side‑by‑side.

• Price: $49
• COGS: $18
• Shipping/fulfillment: $6
• Payment fee: 2.9%
• Refund rate: 6%
• CAC: $22
• Avg orders/customer: 2.4

Typical outcome: positive contribution profit, LTV:CAC often around ~2×–3× (depends on exact fees), payback within a couple orders. If you increase repeat purchases to 3.0, LTV:CAC can jump dramatically.

• Model: Subscription
• Monthly price: $29
• Monthly variable cost: $6
• Refund/churn adjustment: 2%
• Payment fee: 2.9%
• CAC: $120
• Lifetime months: 8

Key interpretation: even with a nice monthly margin, high CAC can force long payback. If payback is 6–10 months, cash flow risk rises (you have to fund growth upfront). Reducing CAC, improving onboarding, or extending lifetime months can stabilize the model.

• Price: $79
• COGS + fulfillment: $38
• Refund rate: 25%
• CAC: $30
• Avg orders/customer: 1.6

Refunds cut realized revenue by a quarter, which also reduces payment fees (a bit) but usually destroys contribution profit. A small refund reduction (25% → 18%) can be equivalent to a surprising price increase — without changing the sticker price.

From numbers to actions

Numbers are only useful if they change what you do next. Here’s a simple way to turn the output into concrete decisions — especially when you’re testing pricing, scaling ads, or deciding whether to enter a new channel.

If contribution profit per unit is negative, pause. Scaling will scale losses. Fix the unit first: raise price, cut variable costs, reduce refunds, or remove expensive features from the “base” product.

Break‑even CAC is your “do not cross” line. If your channel’s CAC is above break‑even, you’re effectively paying to lose money. Either improve conversion/retention, raise prices, or treat that channel as an experiment with tight budget limits.

Two businesses can have the same LTV:CAC, but very different risk depending on payback. A 12‑month payback means you need cash (or funding) to scale. A 1‑month payback means you can often reinvest internally.

If LTV:CAC is below ~1.5×, scaling ads often magnifies problems. If it’s above ~3× and payback is reasonable, scaling is more likely to be stable — assuming your market has demand and you can keep CAC from rising too fast.

Unit economics is most powerful for comparisons: “If we improve refunds 3 points, can we afford higher CAC and still win?” Save multiple scenarios and decide based on the trade‑offs you prefer.

Advanced note: this tool is intentionally simple. In reality, CAC varies by cohort, discounts change price, and variable costs change with volume (shipping rates, hosting efficiency). Treat outputs as a starting point.

Frequently Asked Questions

• What is “unit economics” in plain English?

  It’s the profit math of one unit — one order or one customer. If you can’t make money per unit (or per customer), growth makes you bigger but not better.

• Is contribution margin the same as gross margin?

  They’re related. Gross margin often includes COGS only (and sometimes excludes shipping/support), while contribution margin includes all variable costs that scale with each unit. Contribution margin is usually the better “can we scale?” metric.

• How should I estimate average orders or lifetime months?

  Use simple historical averages if you have them: total orders ÷ total customers (for repeat), or average paid months (for subscription). If you’re early, start conservative and update as data arrives.

• What LTV:CAC ratio should I target?

  Many teams like 3×+ as a healthy target, but it depends on your category, growth rate, and overhead. If payback is very fast, a lower ratio can still be okay. If payback is long, you may need a higher ratio.

• Does this include fixed costs, salaries, or taxes?

  No. This calculator focuses on unit-level contribution and CAC. Fixed costs matter — but you usually want the unit engine to be healthy before layering fixed overhead.

• Why does refund rate reduce revenue instead of adding “return costs”?

  It’s a simplification. Refunds typically remove revenue, and sometimes also add return shipping or restocking costs. If returns are expensive, you can approximate that by increasing fulfillment/support costs.

• What if CAC is $0?

  Then LTV:CAC becomes “infinite” and payback is immediate. That can happen with strong organic growth, referrals, or partnerships — but still watch variable costs and refunds.

• How can I make this calculator go viral?

  Post a screenshot of your “before vs after” scenario and name the lever: “We reduced refunds from 12% → 7% and our break-even CAC jumped by $18.” People love simple, quantified transformation stories.

Model assumptions (so you don’t get surprised)

• Refund rate reduces realized revenue directly. If returns also add costs, increase fulfillment/support.
• Payment fee is applied to realized revenue (after refunds).
• Lifetime units is a simple multiplier (orders or months). It does not model cohort curves.
• Break‑even CAC is set to LTV contribution (not a guarantee — just the model’s limit).
• If contribution profit per unit is ≤ 0, payback is shown as “not achievable”.

Want a deeper model later? Add: discounting, churn curves, upsells, chargeback costs, and channel‑specific CAC.